the “illusion of compensation”: cy près distributions · pdf filethe...

THE CANADIAN BAR REVIEW

LA REVUE DU BARREAU CANADIEN

Vol. 92 2013 No. 2

THE “ILLUSION OF COMPENSATION”: CY PRÈSDISTRIBUTIONS IN CANADIAN CLASS ACTIONS

Jasminka Kalajdzic*

In both the US and Canada, the now common use of cy près in the designof class action settlement distribution plans represents a radicaltransformation of the original cy près doctrine. Despite the facilitativerole of class actions in aggregating claims, in some cases there may beno practical way to calculate or pay hundreds of thousands of smallclaims. The cy près device has become the mechanism by whichaggregation of loss is effected. It is therefore used not only to dispose ofunclaimed settlement funds, but to avoid having class members claim aportion of the settlement at all. In this way, cy près creates the “illusionof compensation” because the bulk of the class receives no compensationat all. This paper critically and empirically examines the use of cy prèsin Canadian class actions, with references to developments in Americancy près jurisprudence. It explores the various judicial approaches to thedevice, and provides a comprehensive collection of data regarding thenature and extent of cy près use in Canada. The author concludes withobservations about the policy implications of resort to cy près inCanadian class action settlements.

Aujourd’hui courante tant aux États-Unis qu'au Canada, l’applicationdu principe de l’aussi-près (cy-près doctrine) dans l’élaboration desplans de redistribution des règlements des recours collectifs constitue

* Faculty of Law, University of Windsor. I thank Jonathan Wiesenthal, ChristinaSibian and Tatha Swann, all former law students at the University of Windsor, for theirresearch assistance over the course of three summers, and the Law Foundation of Ontariofor funding these student research positions. Many thanks also to my colleagues CamilleCameron and Jeff Berryman for their helpful comments on a draft of this paper.


une transformation radicale de la conception initiale de ce principe.Malgré le rôle facilitateur que jouent les recours collectifs pourpermettre d’établir la totalité des demandes, il est dans certains casimpossible de calculer ou de verser des centaines de milliers de petitesindemnités. Le principe de l’aussi-près est maintenant le mécanisme quipermet d’obtenir l’agrégation des pertes. Par conséquent, il est appliquénon seulement pour décider de l’utilisation des fonds de règlement nonréclamés, mais également pour éviter qu’aucun des membres du recourscollectif ne reçoive une partie des fonds de règlement, créant ainsi l’«illusion d’indemnisation » du fait que car le gros des membres du recoursne reçoit aucune indemnité. Le présent article fait un examen critique etempirique de l’application du principe de l’aussi-près dans les recourscollectifs au Canada, et donne des exemples qui illustrent l’évolution deson application par les tribunaux des États-Unis. L’article explore lesdifférentes approches à ce mécanisme adoptées par tribunaux et fournitune collection complète de données sur la nature et l’étendue del’application du principe de l’aussi-près au Canada. L’auteur conclut pardes observations sur les conséquences de la pratique du recours à ceprincipe sur le règlement des recours collectifs au Canada.

In both the US and Canada, the now common use of cy près in the designof class action settlement distribution plans represents a radicaltransformation of the original cy près doctrine. The growth of cy prèsawards has resulted logically from the nature of class actions themselves:the monetary damages of individual class members are usually extremelysmall, and notifying each member of their right to claim a portion of thesettlement proceeds can prove to be both difficult and inefficient. Facedwith a number of poor alternatives, ranging from allowing defendants tokeep unclaimed funds to refusing to certify the class proceeding in the firstplace, courts have adopted cy près as a second best alternative to directcompensation of class members, and have done so with only occasionalacademic scrutiny and virtually no legislative guidance.

Recent American jurisprudence suggests that, despite the ascendancyof cy près, there are policy questions demanding attention. In a controversialarticle published in 2010, Martin Redish and two co-authors argue that theuse of cy près in US class action settlements violates constitutionalprinciples, is inconsistent with procedural due process, and distorts theunderlying substantive law being enforced by way of the class actionprocedure.1 The authors begin with the proposition that in its original form,cy près is a trust principle invoked merely as a means of disposing of

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1 Martin H Redish, Peter Julian and Samantha Zyontz, “Cy près Relief and thePathologies of the Modern Class Action: A Normative and Empirical Analysis” (2010) 62

The “Illusion of Compensation”: Cy Près Distributions …

unclaimed property.2 In its current manifestation in class actions, however,cy près becomes the mechanism by which aggregation of loss is effected.Despite the facilitative role of class actions in aggregating claims, in somecases there may be no practical way to calculate or pay hundreds ofthousands of small claims. Cy près is therefore used not only to dispose ofunclaimed settlement funds, but to avoid having class members claim aportion of the settlement at all. In this way, “[c]y pres creates the illusionof compensation,” because the bulk of the class receives no compensationat all.3

A number of American appellate courts have rejected proposedsettlements on the basis of concerns regarding cy près provisions. In a rareset of reasons issued on November 4, 2013 when the US Supreme Courtdenied certiorari in a class action settlement involving Facebook, ChiefJustice Roberts signaled the Court’s interest in reviewing the use of cy prèsin class actions, citing the Redish article.4 Although the Chief Justice foundthat the cy près settlement under appeal did not provide the opportunity toaddress “fundamental concerns” surrounding the use of the device, heproceeded to list the matters the Court would clarify in the appropriatecase. Among them: when, if ever, such relief should be considered; whatthe respective roles of the judge and parties are in shaping a cy prèsremedy; and how closely the goals of any enlisted organization mustcorrespond to the interests of the class.5

These are not novel issues, and despite receiving little judicialattention, they arise equally in Canadian class action practice. In this paperI critically and empirically examine the use of cy près in Canadian classactions, with references to developments in American cy près jurisprudence.First, I describe the origins and purpose of cy près in Canadian law. In Part2, I provide a taxonomy of the ways in which cy près has been used in classactions, and refer to illustrations of these categories in the case law. In Part3, I summarize and critique the various judicial approaches to cy près inCanadian class actions. In Part 4, I provide an empirical account of the useof cy près in Canada over the last two decades. It is, I believe, the mostcomprehensive collection of information regarding the nature and extent ofcy près use in Canada. Finally, in Part 5, I consider the policy questionssurrounding cy près settlements identified in the oft-cited Redish article,

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Fla L Rev 617 . This article has been cited in over two dozen judgments and scholarlyarticles (Quicklaw and Westlaw search conducted on February 19, 2014).

2 Ibid at 624.3 Ibid at 623.4 Marek v Lane, 134 S Ct 8 (2013) [Marek].5 Ibid at 4.


and conclude with observations about the use of cy près as it has developedin Canadian class actions.

1. Origin and Purpose of Cy près Awards in Class Proceedings

The doctrine of cy près, meaning “as near as,” originated in the law of willsand charitable trusts to give effect to a testator’s or settlor’s intent inmaking charitable gifts.6 When a fund dedicated to a charitable purposebecomes impossible or impractical to be applied, cy près permits the courtto direct the funds to be applied instead to another charitable purpose thatapproximates “as nearly as possible” the settlor’s original intent.7 Cy prèstherefore comes to class actions by analogy.8 The equitable doctrine is nowpermitted by statute in all Canadian jurisdictions and is frequently appliedin the settlement of class actions where the identification of eligible classmembers or distribution of damages would be prohibitively expensiverelative to the sums being distributed.

Where there is a potential for unclaimed settlement funds, threeprincipal options present themselves to counsel drafting and negotiating asettlement agreement:

1. Reversion of the residue to the defendants;

2. Pro rata apportionment of residue to class members with approvedclaims; or

3. Cy près distribution of residue to a non-party, charitable interest,such as a not-for-profit organization engaged in community workor research.9

It is now well-accepted in Canadian class action jurisprudence and amongclass action practitioners that reversion of unclaimed settlement funds todefendants is contrary to the policy objectives of class actions and

176 [Vol. 92

6 Nyal Deems, “The Cy près Solution to Damage Distribution Problems in MassClass Actions” (1975) 9 Ga L Rev 893 at 904.

7 Ontario Law Reform Commission, Report on Class Actions (Toronto: 1982),vol II at 573 [OLRC Report].

8 Deems, supra note 6 at 904.9 In British Columbia and Manitoba, the statutes also specifically allow for

forfeiture to the Crown of unclaimed or undistributed funds: Class Proceedings Act,RSBC 1996, c 50, s 34(5)(b) and CCSM, c C-130, s 34(5)(b). The Law Society of BritishColumbia has recommended to the Attorney General that the BC Class Proceedings Actbe amended to permit the courts to direct cy près awards to the Law Foundation of BritishColumbia; see Minutes of Bencher Meeting dated December 6, 2013, available online<http://www.lawsociety.bc.ca/docs/about/agendas/2014-01-24_agenda.pdf>.


therefore to be avoided. When defendants retain a reversionary interest,behaviour modification is not achieved since the defendants do not fullyinternalize the costs of their alleged wrongful conduct, and thus are notdeterred from future misconduct. In essence, reversion results in a windfallto the defendant. In addition, access to justice is not advanced since thereverted funds do not benefit, even indirectly, those who were harmed bythe defendants’ conduct. Quite apart from these policy arguments,reversion also creates perverse incentives for settling defendants to createless than robust notice campaigns and very complicated claims proceduresin order to reduce the likelihood of class members participating in asettlement program.

Pro rata apportionment of any residue is preferable to reversion butraises different policy concerns. As the Ontario Law Reform Commission(OLRC) Report on Class Actions explained, the payment of additionalmonies to class members who have already received their rightful share ofthe settlement fund can be viewed as a windfall, and distorts the access tojustice objectives of class actions.10 This criticism, however, can besomewhat overstated, since most settlements are structured to compensateeach class member only a portion of their actual loss; in these cases, itcould be said that it is not so much a windfall to divide any residue pro ratato those class members who made a successful claim on the funds, as it isinequitable that some class members get substantial recovery while othersget nothing. Apportioning the residue among class members also givesclass counsel little incentive to craft comprehensive notice or claimsprocedures, since the entire fund will be paid out to some portion of theclass in any event.

Cy près distributions, therefore, are the most attractive option forunclaimed settlement funds for a number of policy and practical reasons.As Redish points out,

In its modern form, cy pres relief is uniquely and intentionally designed to bridge theoften enormous gap between a finding of liability and the distribution of damages in aclass action. […] With cy pres, class action attorneys and supporters might believe, theclass proceeding still punishes the wrongdoer and while it may fail to compensateactual victims, at the very least it uses the wrongdoer’s money for worthy purposes. Inthis important sense, use of cy pres represents an integral – indeed, often essential –element of the class action process, rather than merely a neutral method of unclaimedproperty disposition that happens to be applied in the class action context.11

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10 OLRC Report, supra note 7 at 577-79.11 Redish, supra note 1 at 621-22.


By requiring defendants to pay a settlement, even if not directed to theclass members purportedly harmed by the defendant’s activities, cy prèsorders further the deterrence function of class actions12 and ensure thatclass members realize at least some benefits from the settlement, if onlyindirectly, and therefore receive some measure of justice. Indeed, the useof cy près to achieve specific and general deterrence was expresslyendorsed in one of the first settlements involving cy près.13

Nevertheless, cy près awards are not without their criticisms. Notunlike defendants who retain a reversionary interest in settlement fundsand are thereby not incentivized to contribute (financially or withinformation) to a comprehensive notice program, cy près awards do notnecessarily encourage plaintiff counsel to do so, either. That is, it is fareasier to identify an appropriate charitable organization to receivesettlement funds than it is to identify potentially thousands of consumers,shareholders, patients or other groups who fall within the definition of aparticular class. Where the names and contact information are not readilyavailable to defendants or class counsel, significant time and expense isnecessary to locate, notify and process claimants. Cy près awards may bean expedient but inappropriate use of the device in those situations whereclass members have the right to a share of a settlement, but are not locatedor are deterred from claiming due to an overly complicated claims process.

Beyond the question of incentives, there are other, more profoundpolicy concerns raised by cy près settlements. Before turning to a discussionof those issues, it is important to understand precisely how cy près is beingused in Canada, as the policy implications depend very much on context.

2. A Taxonomy of Cy près Provisions

In Canadian class actions, there are two distinct uses of the cy prèsprovision.14 First, there is the residual cy près clause, present in the

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12 Western Canadian Shopping Centres Inc v Dutton, 2001 SCC 46 at para 29, 2SCR 534.

13 In Alfresh Beverages Canada Corp v Hoescht AG, [2002] OJ No 79 (QL) (OntSup Ct) [Alfresh Beverages], after referring to the significant difficulties in identifyingindirect purchasers of the products at issue in the price-fixing scheme and describing thecy près beneficiaries as “surrogates” for the unidentified class members, Cumming Jstated at para 16: “Such a settlement and payments largely serve the important policyobjective of general and specific deterrence of wrongful conduct through price-fixing.That is, the private class action litigation bar functions as a regulator in the public interestfor public policy objectives.”

14 I first proposed this taxonomy in “Access to a Just Result: RevisitingSettlement Standards and Cy Pres Distributions” (2010) 6 Can Class Action Rev 215 at236 [Kalajdzic, “Access”].


majority of recent class action settlement agreements, which provides thatany unclaimed settlement monies will be paid to charities. By definition,such cy près distributions are contingent upon there being unclaimedsettlement funds. It is therefore impossible to quantify ex ante the monetaryamount, if any, of residual cy près provisions. In many cases, no significantresidue remains to be paid out to the identified charity. Knowing, therefore,that a majority of lawyers include residual cy près provisions in theirsettlement agreements tells us nothing about the magnitude of paymentsbeing made to charities. Moreover, it is not common practice to identify thecharitable organization in the settlement documents; the parties maysimply indicate that the cy près payment will be subject to approval by thecourt should there be a residue, at which time counsel will have to turntheir minds to identifying a suitable recipient.

The second type of cy près provision is referred to as the fixed cy prèsbecause the identity of the charity and often the quantum of the paymentare fixed at the time the settlement is reached. Some distribution schemesenvision the whole or a significant portion of the settlement fund beingpaid to charitable organizations in place of direct compensation to classmembers. The amount of the cy près payment may or may not be knownat the time the settlement is finalized, but the identity of the cy prèsrecipients will always be specified as they will need to be approved by thecourt at the settlement fairness hearing. In some cases, the parties willcarve out of the settlement fund a specific sum to be paid to charities, asoccurred in Cassano v TD Bank.15 In other cases, the parties stipulate thatcertain class members’ payments will be directed to cy près recipients ontheir behalf. Georghiades v. Scotia Capital illustrates the latter scenario; inthis case, the claims of all accountholders owed less than $25 weredistributed cy près, while claims over $25 were paid to the accountholders.16

Until the claims process is completed, therefore, the precise sum to bedistributed cy près cannot be calculated, but some payment is virtuallyguaranteed.

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15 (2009), 98 OR (3d) 543, (Ont SupCt) [Cassano]. 16 (23 January 2009), Windsor 03-CV-1982 (Ont Sup Ct) (judgment certifying

action and approving settlement). The cy près recipients were the Law SocietyFoundation in trust for the Lawyers’ Feed the Hungry Program (10%), Pro Bono LawOntario (10%), Toronto Ronald McDonald House (26.6%), Pelletier Homes for Youth(26.6%) and Unity for Autism (26.6%)


Arguably, the OLRC had only residual cy près provisions in mindwhen a majority of the commissioners recommended that classproceedings statutes authorize this form of distribution.17 Repeatedly, theReport referred to the “residue” of an aggregate award being distributed.18

The Report concluded that, “where it has proved impossible to distributeall of an aggregate award to individual class members, the court should beable to order that any residue be applied in a manner that may reasonablybe expected to benefit some or all of the members of the class.”19 The cyprès provision in the draft class action statute contained in the OLRCReport similarly referred to “money that has not been distributed” to theclass.20 In situations where a cy près distribution is not possible because itcannot be applied in a manner to benefit the class, a majority of thecommissioners recommended that courts balance the need for behaviourmodification against the equities favouring a return of the residue to thedefendant, and be empowered to order that the remainder of the funds beforfeited to the Crown.21

The Ontario legislature did not adopt the forfeiture recommendation,nor did it include an express cy près provision as it appeared in the OLRCdraft statute. Rather, Ontario courts have interpreted the interplay betweenthe aggregate damages (section 24) and judgment distribution (section 26)provisions of the Act as authorizing cy près distributions.22 Section 24permits aggregate assessments of damages that may be awarded on anaverage or proportionate basis to class members. Section 26 gives judgesbroad discretion to direct the means of distribution of section 24 awards,and then provides an idem:

(4) The court may order that all or a part of an award under section 24 that has notbeen distributed within a time set by the court be applied in any manner that mayreasonably be expected to benefit class members, even though the order does notprovide for monetary relief to individual class members, if the court is satisfied that areasonable number of class members who would not otherwise receive monetaryrelief would benefit from the order.23

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17 Interestingly, the recommendations regarding cy près were the only ones thatdid not elicit unanimity from the commissioners. The dissenting commissioner, BAPercival, believed that the “undistributed residue of any aggregate assessment […]should be returned to the defendant;” see OLRC Report, supra note 7 at 581, n 292.

18 Ibid at 572-96.19 Ibid at 581.20 Ibid at 870.21 Ibid at 595. Note that Ontario did not follow this recommendation, although

Manitoba and British Columbia chose to include a forfeiture provision in their statutes;see supra note 9.

22 Class Proceedings Act, 1992, SO 1992, c 6 [CPA].23 Ibid, s 26(4).


From the earliest approval of a settlement involving a cy près payment,courts have referred to sections 24 and 26 as authority for the substitutionof charitable recipients for class members in both residual and fixed cyprès awards.24 They have done so notwithstanding statutory ambiguity.Although section 26(4) speaks to “all or part of an award” being distributedin a manner that may benefit a reasonable number of class members, itexplicitly contemplates a claims process and deadline set by the court byreferring to “an award … that has not been distributed within a time set bythe court.” The operating presumption is that there will first be an attemptto distribute the monies to the class, and only after the time set by the courthas expired and all or part of an award remains outstanding does the courthave the authority to distribute the money in another manner.Notwithstanding this reasonable interpretation of the statutory language,Ontario and other courts have universally construed class proceedingsstatutes to as conferring jurisdiction to approve not only residual cy prèsclauses, but also substantial fixed cy près distributions in settlements inlieu of direct compensation to class members.

3. Judicial Approaches

Generally speaking, courts have held that a fixed cy près payment will beapproved “when direct compensation to class members is not practicable.”25

No objective standard is discernible from the case law as to when the“impracticability” threshold is crossed. Judges accept, with little or anydiscussion, the submissions or evidence that identifying class members is“cost-prohibitive.” US courts, on the other hand, are increasingly vigilantabout counsel improperly using cy près relief when it is not clear that directcompensation is not feasible; in a recent case, the Third Circuit vacated aDistrict Court’s approval of the class settlement on the basis that the partieshad not conducted a sufficient search for the contact information of theclass members in order to properly advise them of the settlement.26

In contrast to the paucity of judicial guidance as to when cy prèspayments should be used at all, there is a comparatively rich jurisprudenceon the second question of who should receive the cy près money. Althoughmany courts do not provide extensive reasons for approving a proposed cyprès recipient, a list of criteria to be considered in the approval process canbe derived from a few key decisions:

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24 Alfresh Beverages, supra note 13 at paras 15-16; Sutherland v BootsPharmaceuticals PLC (2002), 21 CPC (5th) 196 (Ont Sup Ct) at para 16 [Sutherland];Ford v F Hoffman - La Roche Ltd (2005), 74 OR (3d) 758, (Ont Sup Ct) at para 132[Ford].

25 Sorensen v easyhome Ltd, 2013 ONSC 4017, 49 CPC (7th) 305 [Sorensen].26 Larson v AT&T Mobility LLC, 2012 US App LEXIS 13292.


• the organization’s membership base

• the organization’s ability to deliver benefits to a particular groupof class members

• the organization’s financial stability

• the organization’s ability to deliver benefits in each province andterritory

• the organization’s ability to reach one or more target age groups,being children, youth, adults or the elderly

• whether the organization was non-denominational

• the organization’s charitable or non-profit designation

• the organization’s history of advocacy, service delivery, researchor education relevant to the products at issue in the litigation27

• there must be a tangible impact on class members.28

Thus, counsel should identify organizations that will use the funds in amanner that will deliver identifiable benefits to the class, directly orindirectly, in an efficient and manageable way. The proposed cy prèsrecipient’s distribution program should be sufficiently related to theinterests and needs of the class to be “materially beneficial” to the class.29

A recent cy près decision in an Ontario action exemplifies adherenceto the test set out above. Sorensen v easyhome Ltd.30 involved a residualcy près distribution. The class members were entitled to receive somecompensation for their losses in the shareholder class action, and only afterthe claims deadline passed would unclaimed funds, if any, be distributed tothe University of Ottawa.31 Perell J acknowledged that cy près paymentsare not specifically referred to in the Class Proceedings Act, but affirmed

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27 All of the above factors are derived from Ford, supra note 24 at paras 84-86,96.

28 Elliott v Boliden Ltd (2006), 34 CPC (6th) 339 (Ont Sup Ct).29 Ibid at para 35.30 Sorenson, supra note 25.31 Note that the Plan of Allocation stipulates that any class member whose

recoverable loss is calculated by the Administrator to be less than $5.00 will not receivecompensation and presumably their settlement amount will be distributed cy près.


that the Act contemplates a distribution that will indirectly benefit the classwhen direct compensation is not feasible.32

With respect to the question of who should receive the payment, PerellJ stressed that the distribution must “serve the objectives of the particularcase and the interests of the class members.”33 Although the proposedrecipient in the case before him – the Canadian Foundation forAdvancement of Investor Rights (FAIR Canada), an organizationdedicated to advancing investors’ rights – had the requisite nexus with theclass, Perell J rejected it because FAIR Canada was a pro bono client ofclass counsel and had joined with the class action firm in makingsubmissions to the Ontario Securities Commission.34 A month later, PerellJ approved an alternative recipient: the Faculty of Law at the University ofOttawa, with the cy près funds to be used for the research of shareholderissues in the context of securities regulation.35 Targeted research on thevery issues at the heart of the class action is precisely the indirect benefitcontemplated by class proceedings statutes; nevertheless, it is not knownwhy this particular law school was chosen.

A large number of cy près distributions, however, lack any nexus to theclass or to the nature of the action, and therefore do not benefit the classmembers. In his study of cy près distributions in Ontario class actionsettlements, Jeff Berryman describes fifteen settlements, almost all ofwhich distributed funds to charities that had no connection to the subject-matter of the class action or the class members. The charities included lawschool research programs (in a settlement involving price-fixing of foodadditives),36 the Boys and Girls Club of Canada (in three price-fixingcases)37 and two business schools (in settlement involving failure to

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32 Sorenson, supra note 25 at paras 24-25.33 Ibid at para 30. The Quebec Superior Court recently adopted the same strict

approach to the “rational connection between the interests of the members and the one ormore beneficiaries to whom the balance [of the settlement fund] is to be distributed;”D’Urzo c Tnow Entertainment Group, 2014 QCCS 365, [2014] QJ No 804 (QL) at para8 [D’Urzo].

34 Sorenson, supra note 25 at para12.35 Information obtained from Siskinds’ website: <http://www.classaction.ca

/classaction-ca/master-page/actions/Securities/Resolved-Actions/EasyHome>.36 Jeff Berryman, “Class Actions and the Exercise of Cy-Pres Doctrine: Time for

Improved Scrutiny,” in Jeff Berryman and Rick Bigwood, The Law of Remedies: NewDirections in the Common Law (Toronto: Irwin Law, 2009) ch 22, referring to BonaFoods v Pfizer, [2002] OJ No 5553 (Ont Sup Ct) (QL) [Bona Foods].

37 Ibid referring to Bona Foods, ibid; Minnema v Archer Daniels [unreported];and Ford, supra note 24. According to counsel for the class in these cases, because theactions related to increased prices for food additives, there was a direct link between themeals programs offered by the Boys and Girls Club and the persons most adversely


disclose in a share prospectus).38 The largest cy près award to date is the$28 million settlement of Cassano. There, half the funds were paid to anorganization promoting financial literacy – arguably very closely related tothe nub of the class action, which involved improper fees levied by bankson foreign credit card purchases. The other $14 million was directed to theLaw Foundation of Ontario, which created the Access to Justice Fund. Ofthe connection between the Fund and the class members in Cassano,Cullity J wrote: “I do not think there is any doubt that a purpose ofproviding or promoting access to justice must be considered to bebeneficial to the public.”39 The connection between the cy près recipientand the class required by the Class Proceedings Act was remote, in that theclass members (credit cardholders) would no more benefit from access tojustice projects in the community than would other members of the generalpublic.

While all of these charities are laudable in their own right, it is fair toquestion why class members’ settlement money should be paid toorganizations whose purpose and works do not benefit the class. For thesereasons, US appellate courts increasingly reject settlements containing cyprès provisions lacking a nexus to the class members or their underlyinggrievance.40 American courts have been more vigilant than our own inensuring that settlement monies retain some connection to the class and itsunderlying claims. Appellate courts have affirmed, time and again, thatthere must be “a driving nexus between the plaintiff class and the cy prèsbeneficiaries.”41 So, for example, the Ninth Circuit rejected a cy prèsdistribution to legal aid foundations and the Boys and Girls Club arisingfrom a class action by over 66 million internet users whose emails wereexploited by the defendant for unlawful advertising campaigns; the

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impacted by high food costs; email communication from Charles Wright to author datedApril 23, 2014 [on file with author].

38 Berryman, ibid referring to Boliden Ltd v Liberty Mutual Insurance Co, 2008ONCA 288, 90 OR (3d) 274 (CA).

39 Cassano, supra note 15 at para 29.40 Nachshin v AOL, LLC, 663 F3d 1034 (9th Cir. 2011) [Nachshin]; Dennis v

Kellogg Company, F3d 8109 at 8121-22 (9th Cir 2012) [Kellogg Company]. 41 Nachshin, ibid. Note that the settlement agreement was subsequently revised

to increase the cash fund distribution to class members and distribute any remainingbalance equally to Consumers Union, Consumer Watchdog and the Center for Science inthe Public Interest. The revised settlement was approved in May 2013. See also DanielFisher, “Roberts Puts Cy Pres Settlements in Crosshairs As He Lets Facebook Pact Pass”Forbes (Nov. 5, 2013), online: <http://www.forbes.com/sites/danielfisher/2013/11/05/roberts-puts-cy-pres-settlements-in-crosshairs-as-he-lets-facebook-pact-pass/> (“Judgesare getting more aggressive in policing class-action settlements, which can be collusivedeals in which plaintiff lawyers bargain away the rights of the class in exchange for a feeand little else.”)


recipients had “no apparent relation to the objectives of the underlyingstatutes” which were to protect internet users from fraud, predation andother forms of online malfeasance.42 Similarly, a cy près award toorganizations that feed the indigent was rejected in Dennis v KelloggCompany, a misleading advertising lawsuit, on the basis that it was“divorced from the concerns embodied in consumer protection laws” andtoo narrow in its geographic reach relative to the demographics of theclass.43

The underlying concern reflected in these cases is that self-interest –either of the parties, their counsel or the court – rather than the class’interests, will be favoured in the course of settlement negotiations.44

Recognizing that class members do not benefit significantly from a cy prèssettlement and the risk that lawyers may not vigorously protect classmembers’ interests, one circuit has noted that district courts are permittedto “decrease attorneys’ fees where a portion of a fund w[ould] bedistributed cy pres.”45 Where the quantum of the residual cy près isunknown, the same appellate court recommended delaying the finalapproval of the counsel fee until the distribution process is complete.46

There is the further risk that particular class members’ interests will bepreferred in the selection of a cy près recipient. In the very recent Bre-Xsettlement, a lone objecting class member was successful in persuading thesettlement approval judge that part of the $3.5 million fund should be paidto the University of Ottawa’s business school.47 The class member was analumnus of the school and already had an award for excellence in appliedethics established in his name.48 Given that the class member was but oneof thousands of class members harmed in the Bre-X fraud, bestowingsettlement monies on his preferred institution, even if the money is to beused to promote business ethics, is not an obvious benefit to the class as awhole. This is especially so when the award is made against therecommendations of class counsel.49

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42 Nachshin, ibid at 1040-41.43 Kellogg Company, supra note 40.44 AOL, supra note 40 at 1039.45 In re Baby Prods Antitrust Litig, Nos 12-1165, 12-1166, and 12-1167, – F 3d –,

2013.46 Ibid.47 Carom v Bre-X Minerals Ltd., 2014 ONSC 2507, [2014] OJ No 1898 (QL)

[Carom].48 These details were not contained in the reasons for judgment, but rather are

available by searching the objector’s name on the University of Ottawa’s website: <http://www.telfer.uottawa.ca/mba/en/awards-and-support> [last visited on April 30, 2014].

49 Carom, supra note 48 at paras 89-90.


As I and several other commentators have noted,50 the unprincipleduse of fixed cy près is problematic, particularly from an access to justiceperspective. Policy concerns arise in two ways. When monies that could bepaid directly to those who suffered the loss at issue in the action – the classmembers – are instead paid to charities because of a less than diligentattempt on the part of class and defence counsel to identify and contact theclass members, access to justice is turned on its head. Class members aredenied their reasonable recovery while at the same time they are precludedfrom litigating their claim with the defendant individually. Thecompensatory function of civil litigation is therefore completely thwarted.

Moreover, even where it is clear that it would be cost-prohibitive orlogistically impossible to pay class members their share of a settlementfund, the choice of cy près recipient can defeat the objectives of cy prèsspecifically and of class proceedings more broadly if there is a weak nexusbetween the cy près recipient and the class members, and therefore noaccess to justice for the class.51 Admittedly, what constitutes an “indirectbenefit” to the class members is inherently subjective, and it is likely thatmany lawyers make a concerted effort to ensure the recipient organizationwill use the award in a manner that indirectly benefits the class. If thecourts in approving the cy près payment do not make those effortstransparent, however, class members and the public at large cannot befaulted for questioning the validity of the choice of recipient.

As I argued in a 2010 paper, courts should be vigilant that cy près isnot resorted to simply because it is easier and cheaper to draft a fixed cyprès clause than it is to create a settlement distribution plan that aims tocompensate the class in whose name the action was brought. To this end, Iquestioned why the aggregate damages provisions of class action statuteswere not being used to fashion settlement distributions that provided atleast “rough justice”:

186 [Vol. 92

50 Berryman, supra note 36; Kalajdzic, “Access,” supra note 14 at 237-50;Jasminka Kalajdzic, “Consumer (In)Justice: Reflections on Canadian Consumer ClassActions” (2011) 50 Can Bus LJ 356; E Rebecca Potter and Natasha Razack, “Cy PresAwards in Canadian Class Actions: A Critical Interrogation of What is Meant by ‘As NearAs Possible’” (2010) 6(2) Can Class Action Rev 297; Christina Sgro, “The Doctrine ofCy Près In Ontario Class Actions: Toward A Consistent, Principled, And TransparentApproach” (2011) 7(2) Can Class Action Rev 265.

51 Done properly, cy près can provide an indirect benefit to the class. An exampleof a distribution with a nexus to the class members and their cause of action is Sutherland,supra note 25. The case involved a drug prescribed for the treatment of hypothyroidism,the cy près beneficiaries were various institutions conducting specific research projects,education and outreach having to do with thyroid disease.


There is no principled reason why both certification and judgment after trial can begranted in cases involving difficult calculations of monetary loss in respect of a largeclass, but direct compensation cannot be achieved economically by way of settlement.Instead, courts routinely approve settlements involving large cy pres distributions onthe basis that calculating individual monetary loss cannot be done economically.Aggregate assessments of global damages can surely be made at all three stages of anaction (certification, trial, and settlement), and statistical sampling used to determinean average or approximate amount to be paid to class members. Put differently, theprinciples behind sections 23 and 24 are as relevant in devising an appropriatesettlement distribution plan as they have been in justifying certification of a classaction.52

When is it not economically feasible to locate or distribute settlementmoney to class members? The case law provides no rule of thumb, letalone a definitive test. Rarely is there an indication in the various cases asto what evidence, if any, was led regarding efforts to locate class membersor the cost of directing compensation to them.53 There has been virtuallyno discussion about whether approximate amounts, as opposed tocalculations of individual losses, could be distributed to class members toovercome the expense of costly assessments.54 And in no decision that Icould find did the court seriously question the parties’ assertion that adirect benefit could not be paid to class members. While it may be the casethat such questioning did occur at the settlement approval hearing, theabsence of any discussion in the reasons for decision of the evidence led orsubmissions gives observers little comfort that it is truly impossible todirect the benefits of the settlement to the class.

Assuming the necessity of a fixed cy près payment can be established,the second question – to whom should it be paid – also merits closescrutiny in order to give effect to the purposes of class actions statutes. Asmentioned above, the statutes provide that courts are empowered to orderall or part of an aggregate award be distributed “in any manner that mayreasonably be expected to benefit class members.”55 The compensatoryfunction of class actions embodied by this provision belies the argument,made by some academics, that behaviour modification alone justifies aclass proceeding and it is therefore not important to whom money is paid

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52 Kalajdzic, “Access,” supra note 14 at 243.53 Alfresh Beverages, supra note 13 is an exception. There, three expert

economists gave evidence on the question of the impracticability of locating classmembers.

54 Kalajdzic, “Access,” supra note 14 at 243.55 See e.g. CPA, supra note 22, s 26(4).


so long as the defendant pays it.56 If compensation is an objective, then theidentity of the cy près recipient matters.

These questions are important not only for purely academic reasons.How and why significant sums of money are paid out with the imprimaturof our courts is a matter of public interest, not least because the moneyostensibly belongs not to corporate defendants but to the individuals theyharmed. As stated earlier, it is virtually impossible to determine how muchmoney has been distributed as a result of residual cy près clauses, becauseinformation about take up rates in the claims process are infrequentlyrequested by the courts. What we can determine, however, is approximatelyhow much money has been distributed pursuant to fixed cy près clauses,because the amounts at issue are almost always disclosed to the court in thecontext of the settlement approval hearing. To what extent is the cy prèstool being utilized in Canada, in either its fixed or residual form? Is therean apparent nexus between the recipients and the class members? Whatfollows is a summary of the data collected about cy près provisions in classactions spanning more than a decade.

4. An Empirical Account of Cy Près Distributions in Canada

The extent of cy près use in class actions has been documented only inpassing. There is no method for determining the number of class actions inwhich funds have been distributed with 100 per cent accuracy. Althoughsome information is publicly available, not all class action settlementdecisions are published. A large-scale survey of all lawyers conductingclass actions in Canada would likely fill in many of the gaps in publiclyavailable information; still, self-reporting has its limits and does notguarantee accuracy of data. In the absence of such large-scale qualitativeresearch, I focused my empirical study on legal databases, law firmwebsites and other internet-based sources.57

There is no registry or other accurate record of class action settlementsin Canada.58 The number and quantum of cy près distributions pursuant to

188 [Vol. 92

56 Berryman, supra note 36; Craig Jones, Theory of Class Actions (Toronto: IrwinLaw Book, 2003) [Jones, Theory].

57 My research students and I mined CanLII, SOQUIJ, QuickLaw and Westlawfor reported decisions that included the search terms “cy pres” and “class action,” alongwith their variations, as well as the applicable provisions of Quebec’s Civil Code, articles1033, 1034 and 1036. We also searched “cy pres” and “class actions” on Google alongwith general terms like “charity” and “recipient.” We then looked for unreporteddecisions on twenty-four individual law firm websites.

58 The Canadian Bar Association’s National Class Action Database is of recentvintage, and despite practice directions which require counsel to file statements of claimwith the Database when a proposed class action is commenced, not all counsel do so. In


class action settlements, therefore, are not readily ascertainable. The focusof this study has been to collect as much information as is publiclyavailable about the frequency with which counsel are using both fixed andresidual cy près distributions. A chart listing all Canadian cases with cyprès provisions for the twelve-year period ending in 2012, including theidentity of the recipients and the quantum of the payment where known, isappended to this paper.59 The information collected is summarized in thefollowing table:

From 2001 to 2012, cy près distributions have been approved in atleast 65 class actions, the vast majority of them in the past decade. Of these65 cases, 40 contemplate a fixed cy près distribution, and 25 provide for aresidual cy près.60 It is important to note that it is almost certain many morethan 25 settlements contain residual cy près clauses. Not all settlements arereported on CanLII or other databases, and even where the judge’sapproval of the settlement is reported, a residual cy près clause rarelyattracts much judicial discussion. A reported class action settlement,therefore, may well contemplate the residue being paid to a charity,without “cy près” being mentioned in the reasons for decision. Assumingthat roughly 65 cy près awards have been made, however, Canadian classaction practitioners are using the fixed cy près device much morefrequently than their American counterparts. According to one American

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any event, lawyers generally do not indicate on the Database whether a class action hasconcluded or on what terms.

59 See Appendix A.60 Where a settlement provides for both fixed and residual cy près distributions,

the case was counted only once for our tally, as a fixed cy près case.

0

2

4

6

8

10

12

14

2001/2002 2003/2004 2005/2006 2007/2008 2009/2010 2011/2012

Table A

Cy Près Distributions by Type

Fixed Residual


study, fixed cy près awards comprise only 25% of all cy près distributionsin Federal class actions.61

The Canadian data reveals a number of other interesting points:

• Cy près awards are most popular in class action settlementsapproved in Ontario. This fact is not surprising insofar as nationalclasses are usually Ontario actions, and class actions have thelongest pedigree in Ontario as compared to the rest of English-speaking Canada. Residual cy près distributions are contemplatedby Art. 1033, 1034 and 1036 of Quebec’s Civil Code but fewreported decisions were available.62

• The amounts distributed to charities vary greatly. The fixed cyprès distributions ranged from approximately $17,000 to $28million. It is not possible to know the sums distributed by way ofresidual cy près based on public documents; only class counsel orclaims administrators possess this information.

• The organizations receiving these monies also vary greatly.Hospitals are popular recipients, as are medical research facilities,public education organizations, and national charitable foundations(the Heart and Stroke, Cancer and Arthritis Foundations, forexample).

• Multiple charitable organizations were often identified to receiveportions of a single cy près award in settlements approvedbetween 2000 and 2010. In the past three years, it has becomemore common for a single recipient or a handful of charities to beidentified. This may be due to the creation of the Access to JusticeFund by the Law Foundation of Ontario,63 which obviates theneed for class and defence counsel to identify a variety oforganizations or initiatives. The Access to Justice Fund itselfsupports a variety of projects.

190 [Vol. 92

61 Redish, supra note 2 at 657.62 Several unreported decisions were discovered in footnotes to the D’Urzo

decision, supra note 33 and in Stieber c Joseph Elié ltée, 2009 QCCS 2498, [2009] QJNo 8228 (QL), leading the author to conclude that residual cy près distributions are notuncommon in Quebec, just unreported.

63 The Law Foundation created the Access to Justice Fund in 2009 after receivinga $14.6 million cy près award in Cassano, supra note 15. It is a permanent fund and hassince received five more cy près awards: <http://www.lawfoundation.on.ca/what-we-do/access-to-justice-fund-cy-pres/>. Most recently, it received almost $3 million in thewinding up of the Bre-X class action; Carom, supra note 47.


• The number of fixed cy près cases remained relatively consistentbetween 2009 and 2011. In 2011 seven class action settlementscontaining fixed cy près awards were approved, and in each of2010 and 2009, six such settlements were approved. Thesenumbers are comparable to rates in US federal courts, which haveapproved an average of roughly eight cy près awards per year since2001.64 In 2012, however, only one fixed cy près distribution wasreported in Canada, compared to seven awards the previous year.

• Not including residual cy près distributions, which cannot bequantified based on a review of settlement agreements alone,65

roughly $100 million has been given to charitable organizationsand other non-profit institutions pursuant to class action settlementsover the last decade. These are funds theoretically owed bydefendants to class members.

• The fixed cy près awards resulted mainly from Competition Actclaims and actions against banks regarding credit card terms. Thisis not surprising given that in both of these types of cases, consumerlosses are small per capita and the class is very large. In addition,purchasers who make up the class in Competition Act claims maybe unidentifiable unless and until they make a claim on thesettlement, and the cost of locating them, therefore, may be high.

The cy près device, therefore, has become commonplace in class actionsettlements, with significant sums of money being distributed. Whendistributions will be made to third parties instead of to class members islargely the decision of plaintiffs’ and defence counsel. To whom they shallbe paid is also a private matter between counsel for the parties, thedefendants and, in some cases, the settlement hearing judge. The policyimplications of this privatized form of distributive justice merit closerattention.

5. Policy Concerns

In the Redish article, three discrete critiques of cy près awards are offered.First, the authors argue that the class action cy près doctrine“unconstitutionally transforms the judicial process from a bilateral private

1912013]

64 Redish, supra note 1 at 653.65 In order to get an accurate total of all monies distributed cy près pursuant to

class actions, one would need access to administrators’ reports or information providedby class counsel to the courts about the administration of a settlement. Many, if not most,judges, however, do not require that counsel report back to the court with suchinformation.


adjudicatory model into a trilateral process” involving an uninjured thirdparty (the cy près beneficiary), in violation of the “case-or-controversy”requirement under Article III of the US Constitution.66 Such aconstitutional argument is peculiar to the US Constitution and has noprecise correlative in Canadian jurisprudence. Outside of constitutionallaw, there are legal concepts of standing and mootness which require thatthere be a live controversy for a case to be justiciable. It is, in my view,over-reaching to suggest that a class action in which damages are not easilyquantified or distributed undermines the court’s adjudicative function toconstitutionally impermissible levels.

Second, Redish argues that procedural due process is imperiledbecause class attorneys are disincentivized from vigorously pursuingindividualized relief for the class members. Even where no actualprejudice occurs, the existence of the temptation to ignore one’s duties tothe client is a breach of due process.67 This concern also does not map ontothe Canadian terrain as a constitutional or administrative law proceduralfairness principle; however, it finds some analogies in the Rules ofProfessional Conduct which mandate duties of utmost loyalty to one’sclient as well as the avoidance of conflict of interest. Still, this objectionbegs the question as to whether a settlement involving a significant cy prèsdistribution is ever a reasonable resolution negotiated by a zealousadvocate for the class. Some cy près settlements may indeed have been theresult of a pitched battle between plaintiffs and defendants in whichpayment to a charitable organization was the only feasible option. Inaddition, in the realm of class actions, the temptations to prefer one’s owninterests abound, and are mediated by the requirement of judicialoversight.68 The conflict of interest problems in cy près settlements aresimply of a different kind, but not of a different order, than any of the otherethical issues in class actions, and cannot by themselves delegitimize cyprès distributions.

It is the third argument that is most apposite in the Canadian context.Redish and his colleagues posit that the use of cy près illegitimatelytransforms enforcement of the underlying substantive law (the laws thatare alleged to have been breached by the defendant) from a compensatoryframework into the practical equivalent of a civil fine.69 Put differently, if,

192 [Vol. 92

66 Redish, supra note 1 at 641-42.67 Ibid at 650.68 Jasminka Kalajdzic, “Self-Interest, Public Interest and the Interests of the

Absent Client: Legal Ethics and Class Acton Praxis” (2011) 49:2 Osgoode Hall LJ 1.69 Redish, supra note 1 at 644-646.


as the courts have repeatedly stated,70 the class action is only a proceduraldevice that does not alter the substantive law, has the payment ofsettlement monies to non-parties expanded the remedial choices normallyavailable to a wronged party under either the common law or statute? Iffixed cy près awards are being granted, thereby depriving class membersfrom even the opportunity of claiming their share of the funds paid by thedefendants, have courts replaced the compensatory function of class actionlitigation with a civil fine model that is unavailable in any other litigationprocedure?

That cy près is only used in class action litigation does not by itselfdelegitimize the use of the device. After all, it is not surprising that suchdistributions do not arise in regular litigation; in ordinary binary lawsuitsthe named parties are before the court and there is no difficulty, therefore,in identifying the recipients of the settlement proceeds.

The normative questions about the legitimacy of this alternativeremedial move remain. These various questions can be reduced to one: candeterrence alone justify a class action? Although the OLRC thought not,preferring instead the view that deterrence is an inevitable but importantby-product of class actions,71 there is some academic support for classactions performing solely a deterrence function. Craig Jones has arguedthat the “main goal of the class action is deterrence; that is, to reduce thesystemic risks of business activity to a socially optimal level.”72 JeffBerryman and Robyn Carroll have also argued that “all legal systems havebehavioural modification as a pervasive concern” and that the fixation oncompensation as the sole aim of private litigation is neither intellectuallydefensible nor factually accurate.73

Unlike US courts, which have expressed a lack of sympathy for theargument,74 there may, in fact, be some support for the deterrence-only

1932013]

70 See e.g. Bisaillon v Concordia University, 2006 SCC 19 at paras 17-22, 1 SCR666; Hollick v Toronto (City), 2001 SCC 68 at para 14, 3 SCR 158; Hislop v Canada(Attorney General), 2009 ONCA 354 at para 57, 95 OR (3d) 81, leave to appeal to SCCrefused, [2009] SCCA No 264.

71 OLRC Report, supra note 11 at 145.72 Craig Jones, “The Class Action as Public Law,” in Janet Walker, ed, Class

Actions in Canada (Emond Montgomery, 2014) at 29; see also Jones, Theory, supra note56.

73 Jeff Berryman and Robyn Carroll, “Cy- près as a Class Action Remedy – JustlyMaligned or Just Misunderstood?” in Kit Barker and Darryn Jensen, eds, Private Law:Key Encounters with Public Law (Cambridge: Cambridge University Press, 2013).

74 Marek, supra note 5 (per Chief Justice Roberts). See also In re ThornburgMortgage Inc Securities Litigation, 2012 US Dist LEXIS 170875 at 24 (class actions arenot “free-standing device(s) to do justice”).


function of class actions within our own Supreme Court. In Sun-RypeProducts v Archer Daniels Midland Company, a price-fixing case decidedin October 2013, the majority acknowledged that the difficulty ofdistributing damages to indirect purchasers frustrated the compensationgoal of Canadian competition laws.75 Nevertheless, “[w]hile cy-presdistributions may not appeal to some on a policy basis, this method ofdistributing settlement proceeds or damage awards is contemplated by the[British Columbia] CPA, at s. 34(1).”76 The majority then cited the BCequivalent of Ontario’s section 26, pointed out that nine other approvedindirect purchaser settlements involved cy près distributions, and statedthat, while “not the ideal mode of distribution, it allows the court todisburse the money to an appropriate substitute for the class membersthemselves.”77 For the latter proposition, the majority cited an Americanlaw review piece that, ironically, is critical of cy près distributions, and thatrecommends judges not be permitted to approve them.78

While the inevitable absence of direct compensation to the class wasnot sufficient to preclude the initiation of a class action, the lack ofevidence demonstrating that two or more persons could prove a loss at thehands of the defendants was fatal to certification in the Sun-Rype case.79

The plaintiffs could not prove that they had purchased products containingthe ingredient that was the subject of the alleged price-fixing scheme. Thetwo dissenting justices would have allowed certification anyway, on thebasis that aggregate damages caused by the defendants’ conduct could beestablished, and that the deterrence function of litigation, taken at itspurest, justified the action:

Behaviour modification is an important goal, especially in price-fixing cases. Whileclass proceedings are clearly intended to create a more efficient means of recovery forplaintiffs who have suffered harm, there are strong reasons to conclude that classproceedings are not limited to such actions. As I detail below, the CPA is designed topermit a means of recovery for the benefit of the class as a whole, without proof ofindividual loss, even where it is difficult to establish class membership. Thus, if noindividual seeks an individual remedy, it will not be necessary to prove individualloss. Such class actions permit the disgorgement of unlawful gains and serve not onlythe purposes of enhance access to justice and judicial economy, but also the broader

194 [Vol. 92

75 2013 SCC 58 at paras 24-27, 3 SCR 545 [Sun-Rype].76 Ibid at para 25.77 Ibid at para 26.78 Daniel Blynn, “Cy Pres Distributions: Ethics & Reform” (2012) 25 Geo J

Legal Ethics 435. Blynn, a law student, argues that judges are susceptible to corruptionand improper influence in being asked to approve donations to organizations that maybenefit judges themselves.

79 Sun-Rype, supra note 75 at paras 62-73.


purpose of behaviour modification. Therefore, I am not persuaded that it is aprerequisite that individual members of the class can ultimately prove individualharm.80

In the dissenters’ view, individuals need not prove individual harm, becauseindividual compensation is not the raison-d’être of the litigation to beginwith. Deterrence alone can justify a class action.

The majority, however, was not prepared to adopt this fairly radicalworldview. To say that behaviour modification is an objective of classactions does not mean that the promise of deterrence is a sufficientjustification for proceeding as a class. In the words of Rothstein J: “[T]hecircumstances here demonstrate that class proceedings are not always theappropriate means of addressing behaviour modification. In cases in whichloss or damage due to price-fixing cannot be proven, the appropriaterecourse may be for the Commissioner of Competition to charge thedefendants under the Competition Act.”81 The majority, it seems, was notprepared to accept the complete outsourcing of the public law function ofregulatory bodies to private entrepreneurial lawyers.

If deterrence alone is the function of class proceedings, as thedissenting judges in Sun-Rype suggested, then much of the class actionprocedural apparatus would need to be revisited. Why the fiction of arepresentative plaintiff if the class is amorphous and no member, not eventhe representative plaintiff, will be expected to prove loss or receivecompensation? If ensuring disgorgement of wrongful gains in the hands ofthe defendants is the primary focus, is much of the current certification testmoot?82 With compensation to class members no longer an objective, cyprès distributions could well become the norm, rather than the exception.

But as the majority’s more cautious approach to the pure deterrencetheory of class actions exhibits, the “conversion” of our litigation model toa civil fine regime is not inevitable. Rather, the limited use of cy près – asa last resort, when compensation is truly not feasible, and when otherregulatory oversight mechanisms fail – reflects a continued adherence tothe traditional goals of our civil justice system, of which deterrence is butone aim.

For this reason, I propose that our courts strictly scrutinize thethreshold question as to when direct compensation is truly not feasible.

1952013]

80 Ibid at para 97 (per Karakatsanis J).81 Ibid at para 79 (per Rothstein J).82 Jasminka Kalajdzic, “Public Goals by Private Means, & Public Actors

Protecting Private Interests: A Response to Professor Jones” (2013) 53 Can Bus LJ 371.


Judges must hold both plaintiff and defence counsel’s feet to the fire; whatefforts were made to locate class members, or distribute funds to themefficiently? Assuming the judge is satisfied that it is impossible oreconomically unfeasible to compensate all class members, is cy près theappropriate alternative? In the context of residual cy près, perhaps courtshave been too quick to dismiss pro rata apportionment of residue to theclass members who have successfully claimed a share of the settlementproceeds.83 After all, it is rarely the case that claimants receive 100 per centof their losses in a settlement claims process. Is a top-up of those losses asgood a policy decision, or even better, than a cy près distribution to anuninjured third party?

There will also be situations where it is known at the outset of theclaims process (or perhaps, at the outset of the litigation) that classmembers will not be identifiable or individual loss will be incalculable.The paradigmatic example of such a case is the price-fixing scenario.Indeed, the empirical data described in Part 4, above, confirms thatCompetition Act cases comprise the largest proportion of fixed cy prèsclass action settlements in Canada. The majority in Sun-Rype, also aCompetition Act claim, suggested that in cases where it is clear thatindividual loss cannot be proven, prosecutions by a regulatory body wouldbe more appropriate.84 Plaintiffs’ counsel will respond that regulatoryinefficacy is what makes private litigation necessary; regulatory bodies areunderfunded or understaffed and simply not as effective as the private barin holding corporate wrongdoers to account.85 In such a situation, a denialof certification or a rejection of a cy près settlement because of theimpossibility of quantifying individual loss may not be defensible from apolicy perspective. But if the goal is deterrence, and private litigation is ina symbiotic relationship with public regulators as has been suggested byour courts,86 then should cy près distributions in cases where individual

196 [Vol. 92

83 There are examples of pro rata apportionment of either residue or amounts dueto class members that are too small to distribute. See e.g. the Plan of Allocation in theArctic Glacier class action settlement, online: <http://www.classaction.ca/CMSFiles/PDF/Securities/Arctic/Plan%20of%20Allocation.pdf>.

84 Sun-Rype, supra note 75 at para 79.85 There is some empirical data to support this assertion in the securities field; see

Stephen J Choi and AC Pritchard, “SEC Investigations and Securities Class Actions: AnEmpirical Comparison,” U Michigan Law & Econ Research Paper No 12-022 (Jan. 20,2014), online: <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2109739>. Note,however, that an empirical study in Australia confirms that the financial ombudsmanthere provided faster and cheaper redress to consumers than traditional class actionlitigation; see Vicki Waye and Vince Morabito, “Collective Forms of Consumer Redress:Financial Ombudsman Service Case Study” (2012), 12 J Corp L Stud 1.

86 AIC Limited v Fischer, 2013 SCC 69 at para 63, 3 SCR 949, aff’g 2012 ONCA47 at para 54, 109 OR (3d) 498 (“The OSC proceedings and the civil action in the form


loss is incalculable be paid to the relevant regulatory bodies themselves, tohelp buttress their oversight mechanisms?87 This is, after all, but avariation of the provisions in some class action statutes that permitsettlement monies to escheat to the Crown, one that ensures a more directbenefit to the class than a payment to the general purse.88

6. Conclusion

Recent Canadian jurisprudence reflects a clear preference for thecontinued viability of class proceedings to achieve both of their primefunctions: deterrence and compensation. Even in its recent decisionsapproving a liberal approach to class certification, however, the SupremeCourt of Canada has raised the possibility that in some instances, theregulatory function of class actions may be better performed by theregulator itself. In this way, the majority in Sun-Rype expressed somediscomfort with the notion of private litigation serving purely a deterrencefunction. In a recent decision denying certiorari, the Chief Justice of theUS Supreme Court signaled a similar discomfort, by questioning the useof cy près settlements, and the roles of courts in approving them.89

Our approach to cy près tests our commitment to the compensatoryfunction of civil litigation. A strict application of the requirement todistribute an award “in a manner that may reasonably be expected to

1972013]

of the proposed class proceeding are intended as parallel, not mutually exclusive,proceedings.”); Green v Canadian Imperial Bank of Commerce, 2014 ONCA 90 at paras38 and 65, 118 OR (3d) 641.

87 I credit Dave Johnston (Class of 2015), a student in my class action seminar,for this perceptive suggestion.

88 Express provisions permitting escheat to the Crown exist in the Manitoba andBC statutes, supra note 9. Another statutory alternative is the provisions or rules inseveral US states which specify that residual cy près payments must go to legal serviceorganizations for the indigent or to support pro bono legal needs; see Emily Baker andLynsey Barron, “Cy Pres … Say What? State Laws Governing Disbursement of ResidualClass-Action Funds,” online: <www.JonesDay.com: http://www.jonesday.com/files/Publication/d5da170f-e20d-4f96-aec1-12cf62115d70/Presentation/PublicationAttachment/fbbc24cf-ffcd-43ed-98ba-be026d39ef17/cypres2.pdf>. A similar provision has beenrecommended by the BC Law Society, supra note 9. There is a marked difference betweency près payments to such organizations as a matter of judicial discretion or counselchoice in the context of existing class action statutes, on the one hand, and as a matter oflegislative mandate, on the other. My argument in this paper is that payments to non-parties where (a) direct compensation to class members is possible or (b) the paymentswill not “reasonably be expected to benefit class members” (to use the language of theOntario Act), is not in accordance with the statutes. It is an entirely different matter if theLegislature expressly directs that residual or fixed cy près funds must go to a particularorganization or support specific activities.

89 Marek, supra note 4.


benefit some or all of the members of the class” where it has proved“impossible” to compensate individual class members directly,90 signals astrong commitment to this normative goal. Unprincipled payments to thirdparties with no connection to the class members or the issues at the heartof the class action risk converting private litigation into civil penalties, asRedish and others have argued. While Redish’s argument that cy prèspayments may be unconstitutional cannot be sustained in the Canadianlegal context, resort to cy près when direct compensation is feasible islegally suspect as a matter of statutory interpretation.

How and why we use cy près is important not just from a normativeperspective. As the empirical study described in this paper shows, cy prèshas become a common tool for resolving complex claims. At least $100million has been distributed to date to third parties in fixed cy prèssettlements alone; an additional untold amount has been paid out pursuantto residual cy près awards. These are not defendants’ funds, but rathermonies that belong to litigants who have been harmed by defendants’conduct, and who, as members of the class, are relinquishing their rights topursue the defendants individually. It is not money that has goneunclaimed by apathetic class members.91 In the case of fixed cy près relief,it is money that class members are not given the opportunity to claim in thefirst instance at all. That counsel and judges should decide when and howto distribute class members’ settlement monies to third parties in aprincipled fashion, with transparency and in keeping with the civil justicesystem’s compensatory function, goes without saying. Failing this, the“illusion of compensation” risks becoming the certainty of injustice.

198 [Vol. 92

90 OLRC Report, supra note 7 at 581.91 Morrison and Rosenberg argue that low take-up rates in class action

settlements signal “faux class actions” – those which class members have no interest inpursuing, and from which they will therefore not make any effort to claim their rightfulshare; see F Paul Morrison and Michael Rosenberg, “Missing in Action: An Analysis ofPlaintiff Participation in Canadian Class Actions” (2011) 53 Sup Ct L Rev (2d) 97.Whatever the arguments for or against residual cy près in these circumstances, the“apathetic class member” argument does not apply to fixed cy près settlements.

The “Illusion of Compensation”: Cy Près Distributions … 1992013]

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1/23

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2009

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2003

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